Jumping too quickly at Ford buyout could prove to be a mistake – Detroit Free Press

Posted: Saturday, June 17, 2017

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About 15,000 Ford salaried workers in North America and Asia offered buyouts. They will know by Aug. 18 if they will stay or go by Sept. 30.Susan Tompor/Detroit Free Press

The logo for the Ford Motor Company appears above a post on the floor of the New York Stock Exchange on May 16, 2017.(Photo: Richard Drew, AP)

David Kudla posted one of those tweets that certainly would grab your attention if you’re one of more than 15,000 salaried workers at Ford staring down a buyout offer.

“Ford employees: Don’t make a $500,000 mistake with the Ford Special Incentive Program,” proclaimed Kudla, CEO of Mainstay Capital Management based in Grand Blanc, via Twitter on June 12.

A $500,000 mistake? Yep, you wouldn’t want to make one of those.

Ford began offering buyout packages to select categories of salaried employees in North America and Asia in early June. Employees who are receiving the offers include those working in communications, finance, government affairs, legal, marketing, purchasing, and sales and service.

Engineers, employees in information technology, manufacturing teams and hourly workers aren’t part of the deal.

Ford expects about 1,400 salaried personnel to end up leaving. Ford reserves the right to decide who will be able to ultimately take the buyout.

Employees looking at buyout packages have a few weeks to decide whether they want to stay on the job or go. And like many buyout offers, there’s a short window for changing your mind. It’s a voluntary offer. Ford employs about 201,000 people worldwide.

Ford has said each employee’s offer would vary based on current salary and benefits, as well as years of service.

Ford is not providing details or timelines for its offer other than to state that the departures must be before Sept. 30.

But a copy of a letter sent to one group of managers for what Ford calls its “Select Retirement Program” noted that employees will have up to 21 days after an initial meeting to notify their managers of whether they would stay or go.

Employees would have seven calendar days — 15 days in Minnesota — from the date of the employee’s acceptance to reconsider the decision.

Employees who say they want to take the offer would be told by Aug. 18 whether it has been accepted, according to Ford’s letter to employees.

It also notes that for employees who stay, Ford reserves the right to “restructure, eliminate or reorganize” jobs.

The offer outlines health care benefits that are offered when someone retires, terms for buying or leasing vehicles under the Z-Plan for retirees, what happens with stock awards, and the like.

Part of the package, no doubt, will make many long-term employees take a serious second look.

A Ford vehicle is seen on a dealership’s lot on May 16, 2017 in Miami, Florida. (Photo: Joe Raedle, Getty Images)

A salaried employee with 20 years, for example, would be offered 18 months of pay. Make $120,000 and you’re looking at $180,000 before taxes to leave. Such an offer would be available to salaried employees on the regular management roll, not the upper levels of management, according to Leon LaBrecque, CEO of LJPR Financial Advisers in Troy.

Such cash payouts are expected to range from three months to 18 months of pay, depending on service.

How can you go wrong?

Kudla told me in an interview that his tweet involved a special feature of Ford’s program where some employees might make more money by staying at Ford and waiting to leave.

Ford offers its salaried workers supplement retirement benefits that can make it easier to retire before age 62 when you’d qualify for Social Security benefits.

If you are age 55 and have 10 years or more of service — or if you are younger and have 30 years or more of service — you may qualify for a supplemental benefit that gives you more money each month until age 62.

But what if you’re 53 and have 10 years of service? Or you’re 50 with 28 years of service? You’re out of luck because you’re not getting that supplemental benefit. You’d likely want to wait until the next buyout offer rolls along.

“You’re leaving behind a significant benefit,” Kudla said. “This is a very important part of the economics.”

Kudla said his firm has talked with dozens of Ford employees already about the potential impact on their bottom line.

Not everyone, of course, is losing $500,000 if they walk away too early. But many could lose thousands of dollars each month for years if they leave before qualifying for any supplemental retirement benefits. If you’re 55, for example, you’d be paid more money each month to supplement the pension for seven years until you reach age 62.

Kudla noted the specific amount of extra money each month would vary between what is classified as an “interim supplement” (for those age 55 and 10 years) and what is an “early retirement supplement” (for employees with 30 years).

Kudla declined to spell out how he reached that potential $500,000 figure. He noted that the calculations are complicated and might be something to be addressed in the future by the firm in its own webinars.

On Thursday, Kudla even tweeted that some could face a $1-million mistake if they’re not careful.

Like any buyout, employees need to decide what they’re leaving behind and where they’re heading before they leave a job.

“A lot of people know they’ve got good prospects if they want to work longer,” Kudla said. “There’s a financial decision to make and there’s an emotional decision to make.”

LaBrecque of LJPR Financial Advisers said many times when buyouts are offered people start out saying things like, “I’m not ready to retire.”

But some can get very tempted when they start thinking that a company is willing to pay to leave.

Yet when making that decision, LaBrecque suggests that employees take time to review all aspects of such deals, including the tax consequences.

The Ford severance lump sum payout is treated like pay, he said, so it will be taxable as income. So if you made $90,000 through Sept. 30 — and you’d qualify for $180,000 for a lump sum buyout — you’re looking at $270,000 in taxable income for 2017.

The buyout lump sum in this example, he said,cannot be rolled over into a retirement plan.

Ford salaried employees eligible for the general retirement plan also have the option to decide to take a lump-sum distribution of their pension benefits or the monthly pension when eligible.

Many financial factors need to be considered in the weeks ahead for those looking at buyouts. And for those who don’t want to retire completely, the question can become: What do you do next?

Do you have a second career in the wings? One that’s a certainty — not a dream, such as teaching golf or yoga, that you suddenly discovered the minute you flipped through the buyout paperwork.

Will the money you’re receiving in any buyout be an adequate financial bridge to either retirement or the next job? And when would you land the next job?

On the plus side, the U.S. jobless rate hit 4.3% in May — the lowest level since 2001. And the Federal Reserve has said that the expectation is that labor market conditions will strengthen somewhat further.

Yet how marketable are you?

Amanda Lehnert, a para-planner at Sigma Investment Counselors in Southfield, said she’d suggest that any employee considering leaving a job or taking a buyout should review job openings at a site such as Monster or Indeed to see what’s available for someone with your experience and skill set.

Like it or not, she said, age is a factor.

“An older, highly compensated, titled employee is likely to have a more difficult time finding a new job than a younger, modestly paid employee,” she said.